This week's Apple earnings provided a report of solid performance and monitored optimism about future iPhone sales, which may be affected later this year by problems surrounding the current coronavirus epidemic in China.
But what seems to have surprised many on Wall Street are the strong results of Apple's wearables division, a result that only reinforces the logic of Apple that may come in the augmented reality game for smartglasses in the near future.
"In terms of wearables … we had another incredible quarter with an all-time record in almost every market we follow worldwide, and this product category is now the size of a Fortune 1
"The demand for AirPods remains phenomenal, especially for our recently launched AirPods Pro … Apple Watch was a great start to the fiscal year 2020, with a record revenue in the course of the quarter. It remains a profound affect our customers' lives and it continues to increase its reach, since more than 75% of the customers who bought Apple Watch in the quarter were new to Apple Watch. "
Cook's comment about Apple's new AirPods Pro product is particularly enlightening given the fact that some people wondered how consumers might react to an even more expensive version ($ 249) of the rather expensive (compared to the free wired earphones that come with iPhones) AirPods model ($ 159).
"Wearables, home and accessories set a new record with sales of $ 10 billion, an increase of 37% on an annual basis with very strong double-digit performance in all five geographic segments and growth in Wearables, accessories and home," said Luca Maestri, Chief Financial of Apple officer. "We have record records for wearables in almost every market that we follow, even though we are experiencing some product shortages due to the very strong customer demand for both Apple Watch and AirPods during the quarter."
And although Apple did not comment on the persistent rumors about an Apple wearable in the smartglass category, Cook was just as enthusiastic as ever about augmented reality as one of the company's product pillars.
"I think if you look at AR today, you would see that there are consumers, there are business applications. This is why I am so excited about it," Cook said. "You rarely have a new technology where companies and consumers are both the key … I think it will permeate your life, because it is both business and home. I think these things will happen in parallel. There are already companies that are deep into the business enterprise working on enterprise applications. And of course you see – you go to the App Store, you see thousands of apps that are currently ARKit compatible and even more coming. " Like many Apple products, there is usually a healthy amount of skepticism in the early stages. When the Apple Watch first came out, many experts formed it as a frivolous miss by the tech giant, and some even predicted that Apple could eventually shake the product to adhere to its core competencies. Similarly, when the first version of AirPods debuted, the bad reviews and jokes made it seem like Q-tips were hanging out of your ears – almost trying to embarrass consumers to avoid them – rampant. Of course, AirPods are now everywhere and they lead the wireless earphone space.
With such a success with high-margin wearables in the rear-view mirror, it seems inevitable that Apple will take the next step and wear an even higher margin in the form of smartglasses that might first work as a reporting device and later as a vector for apps created by ARKit.
With regard to the possible supply chain problems that Apple faces in the coming months, Cook was fairly direct about the potential turbulence that lies ahead.
"Concerning the corona virus … our thoughts are mainly with all those affected in the region. And as I said, we are donating to groups working on controlling the outbreak," Cook said.
"We also work very closely with our team and our partners in the affected areas, and we have had limited journeys to mission-critical situations since last week. The situation is on the rise and we still collect a lot of data points and closely monitor the As Luca said, we have a broader than normal revenue range for the second quarter due to the greater uncertainty. "